• Billboard, Monday, April 7, 2008 11:30 AM

Big music has come a long way in the last 18 months, partnering with a variety of social networks, online music services, and even telecom providers to bring free ad-supported music to the masses. However, for content providers, record company support often comes at a hefty price. Firms can be forced to pay higher upfront fees for licensing music, or in some cases (like that of MySpace Music) they must give up an equity stake in the company.

For example, ad-supported music flop SpiralFrog paid more than $3 million in upfront fees to Universal Music Group before it even launching its service. Social music site Imeem has paid up to $20 million in advance fees in addition to granting the labels equity. One mobile messaging firm recently killed negotiations after a label demanded 85 percent of ad revenue-without any music licensing!

Critics say Big Music's unyielding attitude is impeding the development of a legitimate music marketplace. The record labels are in a tough spot with CD sales in rapid decline and digital music not making up the difference. A major-label executive counters: "If you want to build a legitimate business, there are costs associated with doing it, and that's no different in the virtual world than the physical world."

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